Health insurance premiums to drop dramatically for many Californians, rise for others next year, study reveals

Nearly 600,000 Californians who buy health insurance on the individual market will likely see their premium costs plummet dramatically next year when the state unveils its new insurance marketplace, while more than 1 million wealthier residents could see double-digit increases.

For the first time, state health leaders on Thursday outlined how consumers will be affected by one of the main features of President Barack Obama's national health reform law: the online insurance exchange, known as Covered California, which will open in October.

Nearly 5 million Californians in all will be eligible to buy insurance through the marketplace -- including thousands who have been denied coverage because of health issues.

The national health reform law will bring big changes next year to Californians who buy insurance on the individual market. (Handout)

Although the changes will have a huge effect on many people, they will not apply to the 85 percent of Californians who receive coverage through an employer.

But for many who have been struggling to find affordable insurance on the individual market and watching their costs climb steeply, relief could be on the way.

Those who make less than 400 percent of the federal poverty level -- or about $45,960 for an individual and $94,200 for a family of four -- will see their premiums drop by an average of 47 to 84 percent next year because they will be eligible for subsidies through Covered California, concludes an actuarial report by Milliman, a financial consulting firm.

Consumer advocates were pleased with the news.

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"For too long, individuals buying coverage themselves were left all alone at the mercy of the big insurers," said Anthony Wright, executive director of Health Access, a statewide consumer group. "Particularly important is that almost all will be getting better coverage and value for their dollar."

The Affordable Care Act will require all newly sold health plans to offer a list of "essential" benefits, including some that people may not be getting now, such as mental health care, prescription drugs, rehabilitation services and pediatric dental and vision care.

Such requirements will help ensure that people have "real insurance" that covers what they need, instead of being surprised to find out about exemptions after they become ill, said Peter Lee, executive director of Covered California.

In addition to the nearly 600,000 people who have an individual health plan and who will qualify for a subsidy, 1.6 million uninsured residents will also qualify for a subsidy.

It will be a different picture, however, for the 1.3 million people with individual health plans who earn too much to receive a subsidy. Their premiums will rise by an average of 20 percent, the study found.

Another 1.4 million uninsured residents may opt to purchase coverage through Covered California but will not be eligible for a subsidy.

Among the factors driving up costs: More people with chronic health problems are expected to enter the insurance pool beginning next year when insurers can no longer reject them. At the same time, many young, healthy people, who help keep costs down, may opt to pay a penalty rather than buy insurance. In 2014, the penalty will be 1 percent of income or $95, whichever is greater.

Benicia resident Curt Heimbach, who had hoped for relief from Covered California, was chagrined to learn that his premiums may rise.

"That's insane," he said. "Isn't this supposed to help us?"

Income fluctuates for the self-employed woodworker, but he said he is having a good year and will probably make too much to qualify for a subsidy. He added that it is hard for him to fathom a 20 percent increase.

The couple's monthly insurance costs would have climbed to $1,200 this year, so he reluctantly switched to a plan with a $3,000 deductible and now pays $1,000 a month, still a hefty sum.

"It's crazy, but I have to have it," he said. "I work on machinery. I need to be able to have major coverage. It's a no-win situation for us little people."

Consumers will be able to avoid some of the increase by using the online marketplace to shop for lower-priced plans or ones with fewer out-of-pocket costs, Lee noted.

Most of the people who buy insurance through Covered California "will have the benefit of more predictable and comprehensive coverage, as well as subsidies to help pay for that coverage," said Patrick Johnston, president and CEO of the California Association of Health Plans. "But this report shows that lower cost sharing, richer benefits and more predictable coverage will come at a cost for some."

The study found that without the changes brought about by the Affordable Care Act, premiums would have increased 9 percent next year because of rising health care costs and other factors.

Premium costs could fall below the projections in the study, Lee noted, if Covered California is able to enroll large numbers of healthy people.